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The Finance 202: Wall Street escapes GOP tax cutters unscathed, so far


with Paulina Firozi


Want to keep up with all the ins-and-outs of Washington's tax plan in one easy package? Tory Newmyer has you covered.

Businesses come in first under the tax plan that House Republicans debuted Thursday. Yet some of them have formed the point of the spear already aimed against it.

The mixed reviews from the crowd that stands to reap some of the greatest rewards from the GOP’s first draft of a tax overhaul reflects in part the complexity of a plan that cuts jaggedly across the existing code. 

It also flashes a red warning signal for Republicans as they try to compress the bulk of work on a once-in-a-generation project into what amounts to a legislative month. 

The plan’s top-line benefits for business interests are plain. After flirting as late as Wednesday with a proposal that offered only a temporary cut to the corporate rate, Republicans instead rolled out a plan that dramatically and permanently chops that rate from 35 percent to 20 percent, while skewing more than two-thirds of its benefits to businesses both large and small. That amounts to about $1 trillion of the $1.5 trillion in cuts the package hands out, according to a preliminary analysis by the Joint Committee on Taxation released Thursday by the House Ways and Means Committee. 

But a motley though potent array of industry groups has aligned against the package (see the bill text here), and its ranks could swell in the days ahead. Before the plan was even unveiled, the National Association of Home Builders and the National Association of Realtors signaled their opposition, pointing to new limits on deductions for mortgage interest and state and local taxes. 

On Thursday, they were joined by the National Federation of Independent Business — the small-business lobby, a political powerhouse whose approval Republicans typically crave. The group said the plan doesn’t do enough to relieve its members’ burden, since it limits a reduced rate for small businesses that pay through the individual side to only 30 percent of their income.

The BUILD Coalition — a collective of financial services firms, private equity investors, real estate developers and farmers — came out against the bill for scaling back the write-off for interest on business debt. And the National Farmers Union, a group that rivals the NFIB’s apple-pie credentials, said it will oppose the package for what it called shifting the tax burden from “top earners to the backs of American family farmers, ranchers and the middle class.”

Rep. Kevin Brady (R-Tex.) vowed the tax cuts in the plan would be "transformational:"

Rep. Kevin Brady (R-Tex.) said on Nov. 2 that the tax cuts in the GOP's tax plan will be "transformational," and that President Trump backs the plan. (Video: Reuters)

Other industry groups released placeholder statements, praising the release of the plan but indicating room for improvement. The U.S. Chamber of Commerce, for one, noted that “a lot of work remains to be done.” Meanwhile, tax departments in corporate headquarters across the country spent Thursday sifting through the 400 pages of bill text to try to assess what the proposal would mean for their bottom lines. 

Big tech companies — blue-state stalwarts unloved by Republicans in general and facing new heat from Democrats over their role in the 2016 election — are on especially high alert, industry lobbyists tell me. The proposal forces home their stash of overseas profits at a at a 12 percent rate, two points higher than they anticipated. And it subjects their future earnings to a new minimum tax — changes that could add up to higher tax bills for some tech giants than the ones they pay now. (Rep. Ro Khanna, a Democrat whose Silicon Valley district includes the corporate headquarters for Apple, Intel, Yahoo and eBay, tells me that he’s “perfectly confident that the tech companies in my district are going to do great.” But an industry lobbyist lamented that the sector finds itself seemingly friendless on the Hill all of a sudden.)

Wall Street, that other money center in a liberal bastion, got what CapAlpha’s Charles Gabriel described as “generally benign” treatment in the bill. That maybe shouldn’t come as a shock, considering two of the Big Six negotiators who spent months behind closed doors developing a framework for the plan — namely Treasury Secretary Steven Mnuchin and top White House economic advisor Gary Cohn — just left financial services jobs last year to join the policymaking arena, both for the first time.

Yet the industry, like tech, offers a juicy target for Republicans desperate for revenue and loathe to look for it in their own backyards. (Wonkblog has this analysis of how the bill's proposed elimination of deductions would hit blue states hardest.)

House Speaker Paul D. Ryan unveils the GOP tax plan:

House Speaker Paul Ryan (R-Wis.) said on Nov. 2 that the GOP tax plan will help middle class taxpayers, and save average families $1,182 a year. (Video: Reuters)

Big banks pay high effective rates, so the corporate cut would mean a windfall. "The five biggest diversified U.S. banks alone might have had tax savings of $11.5 billion in 2016 at that rate, the biggest sum for any sub-industry group tracked by S&P," WSJ's Rachel Louise Ensign and Telis Demos write.

The bill also favors financiers by what it leaves out. The package doesn’t revive a bank tax included in the last comprehensive Republican tax package, from then-Rep. Dave Camp in 2014, though it would stop big banks from expensing assessments they pay to the FDIC; it abandoned a cap on tax-free contributions to retirement plans, to the relief of asset managers; and it dropped a Trump campaign promise to hike the capital gains rate for carried interest earned by private equity investors and others. 

Further, an idea that Rep. Tom Reed (R-N.Y.) has been developing to impose a new tax on derivatives didn’t make it into the bill — and it won’t be added later. “We were ready to go, but there are so many ripple effects in this world,” Reed, a Ways and Means member, tells me. “This is going to be a longer-term effort, once tax reform is done, to normalize a lot of what we were discussing, getting support from all the stakeholders and educating people off the committee.” 

Much is still subject to change. But those businesses that find themselves on the losing side of the bill’s math face a challenge. Tax writers used up all the deficit-spending leash the budget unspooled, so convincing lawmakers to write back in a preferencs means forcing them to pay for it elsewhere. The zero-sum battle will be joined as quickly as vested interests determine what side they’re on. 

(Read my colleague Steven Mufson's rundown on how a host of other industries look primed to fare, including manufacturers, oil and gas companies, and the renewable energy sector — and this broader look from Heather Long at the bill's winners and losers, from the super-rich to the working poor.)

Watch President Trump say the GOP tax plan will make the U.S. "competitive again":

President Trump on Nov. 2 said the GOP plan to revise the tax code will make the U.S. “competitive again with the rest of the world.” (Video: The Washington Post)

Watch this video explainer of the tax plan released yesterday:

House GOP leaders on Nov. 2 proposed legislation that would overhaul the U.S. tax code. (Video: Monica Akhtar/The Washington Post)
President Trump nominated Jerome H. Powell as the next chair of the Federal Reserve Nov. 2. (Video: Reuters)


— Powell's Rose Garden nod. FT's Sam Fleming and Demetri Sevastopulo: "Jay Powell was named by President Donald Trump as his nominee to serve as the next chair of the Federal Reserve, as he moved to make his mark on the world’s most powerful central bank... The 64-year-old Mr. Powell has been a serving Fed governor since 2012. A centrist on monetary policy, he is known as a pragmatic and down-to-earth official with private sector and government experience. A trained lawyer and former partner at private equity firm Carlyle, he also served in the Treasury under former president George H W Bush in the 1990s. Underlining the sense of stability he is expected to bring to the role, Mr. Powell said he would continue to work with colleagues 'to ensure that the Federal Reserve remains vigilant and prepared to respond to changes in markets and evolving risks'."

— "A safe gamble."  WSJ's Greg Ip: "Trump’s selection of Federal Reserve governor Jerome Powell to succeed Janet Yellen as chairman of the central bank is something of a gamble. Unemployment is at a 16-year low, economic growth is picking up, the stock market is setting records, and yet he’s changing leaders at the institution most responsible for all of that.

As gambles go, it looks like a safe one. Of all the candidates Mr. Trump considered after deciding not to keep on Ms. Yellen, Mr. Powell’s temperament and views come closest to hers. He believes the Fed should use all available tools—bond buying, interest rates and verbal guidance—to get unemployment down and keep inflation at its target of 2%. He backs the regulatory framework put in place under President Barack Obama, albeit with less strict implementation. Mr. Powell’s job will be turning those beliefs into effective policy."

Who is Powell? Here's his bio, in 98 seconds:

The Senate confirmed Jerome H. Powell as the next chairman of the Federal Reserve on Jan. 23. He replaced Janet L. Yellen, whose term ended in February. (Video: Jhaan Elker/The Washington Post)

Four challenges. The Post's Sarah Binder and Mark Spindel: "Powell will confront at least four speed bumps. 1. This could be the most polarizing vote ever to confirm a Fed chair... 2. How will Powell forge consensus at the Fed?... 3. Will the new Fed unravel Dodd-Frank’s regulatory policies?... 4. Will a Republican Congress ease up on a Republican-led Fed?"

Bloomberg reports Senate Republicans aim to confirm Powell by the end of the year:

Inside the search. WSJ's Peter Nicholas, Kate Davidson and Michael C. Bender: "As he cast about for someone to lead the world’s most powerful central bank, President Donald Trump kept everyone guessing. The fortunes of different candidates rose, fell and rose again as Mr. Trump brought them in for interviews and peppered friends and advisers with questions about whom to tap. At times he seemed torn. After the White House spent months winnowing the field to five finalists, aides worried that Mr. Trump might scrap the whole lot and nominate someone else entirely. 'He’s always got somebody else in his head and he’s polling everyone around him for more names,' a person familiar with the search said last week...

The decision also underscored the influence of... Mnuchin, who helped lead the search. Mr. Mnuchin was the biggest 'cheerleader' for Mr. Powell, one White House official said... As recently as mid-October, the president was still privately raising concerns about Mr. Cohn’s Charlottesville comments, according to a White House official. In a private meeting at the White House, the president questioned whether Mr. Cohn was “up to the job” of Fed chairman, the official said."

Powell for Federal Reserve chair could support stocks bull market (Reuters)

Dollar falls after U.S. Republicans release tax reform proposal (Reuters)

Get ready for a blowout October jobs number after hurricanes slammed September hiring (CNBC)

House Minority Leader Nancy Pelosi (D-Calif.) called the Republican's tax plan a "ponzi scheme" at a news conference on Nov. 2. (Video: Reuters)


House GOP unified, for now. Politico's Brian Faler: "But, as expected, it didn’t take long for various interest groups that feel stung by the measure to make their views known, and that will likely make the lawmakers’ unity fleeting. Even before the legislation was formally unveiled, one of the most powerful groups in conservative circles, Americans for Prosperity, warned that plans to slap a tax on imports from U.S. companies that move jobs abroad 'has the potential to derail much-needed reform.'"

Schumer calls it a stinker: "In the old days you could give a crumb to the middle class and give most of the tax breaks to the wealthy, and people would say, ‘Okay,’ ” Schumer said in an interview with Washington Post reporters hours after House Republicans released a draft tax bill. “But with income distribution, sourness and populism where they are, that’s not working, so I think this bill has real trouble... The more people find out about it, the less they’ll like. This bill is like a dead fish. The more it’s in sunlight, the more it stinks, and that’s what’s going to happen.”

Blankfein: Now's not the time for tax cuts. The Goldman Sachs chief executive tells Bloomberg that he "can’t say this is the moment where you want the most fiscal stimulus in the market, when we’re mostly at full employment, when GDP last registered at 3 percent. I don’t know that this is the moment that you provide the biggest stimulus.” Instead, he advocates encouraging growth through deregulation. (Blankfein can make the case to Trump himself: He's set to join the president on his trip to Asia as part of a business delegation. Here's a roster of who else is going.) 

And economists are divided. The New York Times's Patricia Cohen: "Economists are still parsing the details, but even some ardent supporters of the plan say expectations about heady growth and job gains are exaggerated. Interest rates are already at bargain-basement levels, plenty of potential investment capital is sloshing around, and the official jobless rate is at lows not seen in many years. Moreover, the cost of the tax package will inevitably deepen the deficit and lead to spending cuts that are likely to hit low- and middle-income workers."

The hidden 46 percent bracket. Politico's Danny Vinik: "House Republicans claim the tax plan they introduced Thursday keeps the top individual rate unchanged at 39.6 percent—the level at which it’s been capped for much of the past quarter-century. But a little-noticed provision effectively creates a new band in which income is taxed at over 45 percent. Thanks to a quirky proposed surcharge, Americans who earn more than $1 million in taxable income would trigger an extra 6 percent tax on the next $200,000 they earn—a complicated change that effectively creates a new, unannounced tax bracket of 45.6 percent. It hasn’t been advertised by Republicans, who have described their plan as maintaining the current top tax rate of 39.6 percent. And it goes against decades of GOP orthodoxy that raising taxes on the rich discourages work and reduces economic growth."

Estate tax gone, after 6 years. CNBC: "Under the new proposal, coined the Tax Cuts and Jobs Act, the estate tax exemption will double and then be repealed as of 2024. In addition, there would continue to be a "step-up in basis," which means if you inherit shares of stock, for example, and turn around and sell those shares, you wouldn't pay any capital gains taxes either. Because of the sky-high threshold, only the wealthiest Americans now pay the federal levy. The Tax Policy Center estimated there were about 11,310 estate returns filed and about half of those were taxable for 2017. Still, the amount of tax collected on those returns was just under $20 billion, the Tax Policy Center said."

Housing market shakeup? The New York Times's Conor Dougherty: "The Republican tax plan unveiled on Thursday takes aim at the most sacred of cows: the provision that subsidizes homeownership by allowing the deduction of interest on mortgage debt... If the idea holds — and history suggests that will be difficult — it will echo loudly through higher-priced cities on the coasts. 'The impact on the market is going to be recognizable,' said Ure R. Kretowicz, chief executive of Cornerstone Communities, a homebuilder in San Diego. 'There’s going to be less incentive to build, and less incentive to buy.' For the builders, it will also squeeze the high end of the market, where the biggest profits lie. The stocks of homebuilders fell sharply on Thursday: Lennar was down 3.3 percent, KB Home dropped 3 percent and Toll Brothers plummeted 6.1 percent."

Sen. Jeff Flake (R-Ariz.) is already raising deficit concerns:

H&R Block hates postcards. This is the kind of selloff Republicans can cheer. CNBC's Thomas Franck: "The new tax bill unveiled by House Republicans Thursday is so simple that taxpayers will be able to file using a postcard, according to GOP lawmakers... As both Brady and House Speaker Paul Ryan delivered the news, shares of tax-planning firm H&R Block fell about 2.7 percent Thursday."

— Changes coming. The "chairman's mark," with changes to the bill, is expected out today, before a mark up on Monday.

Ivanka stiffed. Politico's Nancy Cook: "Ivanka Trump doesn’t always get what she wants. The House Republican tax plan unveiled on Thursday includes one of Trump’s pet issues – the child tax credit – but expands it less generously than the White House senior adviser and first daughter had hoped. Recently, Trump has been lobbying lawmakers on expanding the credit, hosting both Republicans and Democrats for private dinners at her Kalorama home and visiting a handful of Republicans on Capitol Hill."

Sen. Marco Rubio (R-Fla.) counts himself an ally in her push: 

Odds and ends. The bill knocks out a bunch of smaller deductions, some more politically consequential than others. It eliminates the write-off for medical expenses, for example — a proposal that's already raising alarm among some taxpayers, if my inbox Thursday was any indication. Alimony payments would no longer be tax deductible. And the package scotches a tax break for electric cars. More, from the New York Times, here

And here's another example, via Axios:

Corey's new side hustle. "An issue advocacy group aligned with Donald Trump plans to spend about $1 million on ads promoting the Republican tax proposal and will feature the president’s first campaign manager, Corey Lewandowski, as its pitchman," Bloomberg's John McCormick reports. "The television and online campaign is the biggest yet financed by the White House-sanctioned America First Policies political organization. The spending is an initial down payment on what the group says will be a multi-million dollar effort it hopes will help the president and Republicans score their first major legislative win."


-- Here's a great interactive from The Post that tackles your major unanswered questions about the Republican tax plan. Here are just a few of the common questions you may have, answered:


What we know about Russia's cyber tactics:

Here's what we know about the Kremlin's playbook for creating division in the U.S. (Video: Jenny Starrs/The Washington Post)


Sessions faces new questionsThe Post's Karoun Demirjian, Sari Horwitz and Adam Entous: "Senate Democrats have demanded that Attorney General Jeff Sessions explain why he did not disclose a March 2016 gathering with then-candidate Donald Trump and members of his campaign team at which an adviser offered to set up a meeting between Trump and Russian President Vladi­mir Putin. Sessions’s participation in the gathering was detailed in court documents released Monday by special counsel Robert S. Mueller III. The adviser who offered to set up the meeting was George Papadopoulos, who has pleaded guilty to lying to the FBI, according to the documents. Sessions had not previously disclosed the meeting, despite being asked over multiple appearances on Capitol Hill whether he or anyone on the campaign ever discussed meeting with Russians."

Manafort, Gates under house arrest. USA Today: "Lawyers defending President Trump's former campaign chairman Paul Manafort mounted their first counterattack against federal money laundering and conspiracy charges on Thursday, insisting that federal prosecutors had "embellished" the strength of their case. 

Manafort and another former Trump aide, Rick Gates, have been under house arrest since Monday, when special counsel Robert Mueller unsealed a 12-count indictment tied to their work on behalf of a pro-Russian faction in Ukraine. The charges that both served as unregistered agents of a foreign government then laundered their profits into the United States are part of Mueller's wide-ranging investigation into Russian efforts to influence the 2016 election."

Poll: Half think Trump committed a crime. The Post's Emily Guskin and Matt Zapotosky: "More than twice as many Americans approve as disapprove of special counsel Robert S. Mueller III’s investigation of possible coordination between Donald Trump’s 2016 campaign and the Russian government, a new Washington Post-ABC News poll finds, indicating that the conservative effort to discredit the probe has fallen flat as the case has progressed toward its first public charges. A 58 percent majority say they approve of Mueller’s handling of the investigation, while 28 percent say they disapprove, the Post-ABC poll finds. People’s views depend in large part on their political leanings, but overall, Americans are generally inclined to trust Mueller and the case he has made so far. Meanwhile, fewer than 4 in 10 Americans say they believe Trump is cooperating with Mueller’s investigation, while about half believe he is not."

NAFTA chaos. WSJ's William Maudlin: "In recent weeks, as the Trump administration’s efforts to renegotiate Nafta have grown contentious, concerns of a withdrawal have clouded the outlook for a range of businesses, including Midwest farms, Detroit auto makers, vegetable importers and more. These businesses are increasingly being warned of potential risks on all sides of the borders. On a conference call with investors last week, Alberto Chretin, chief executive of real estate investment trust Terrafina, a commercial landlord with interests in Mexico, said it is discussing contingency plans with its manufacturer tenants in case they face new tariffs after a potential collapse of Nafta."

Democrats sue GSA over access to Trump hotel records (Jonathan O'Connell)

Twitter employee on last day of job deactivated Trump’s account, company says (Rachel Siegel and Hayley Tsukayama)


RenTech’s Robert Mercer to Exit as Co-CEO, Sell Breitbart Stake (Bloomberg)

Bank of America settles overdraft lawsuit for $66.6 million (Reuters)

Bitcoin Hits $7,000 as Wall Street Interest Gets Real (WSJ)


POST PROGRAMMING ALERT: The Post and Live Nation will bring the “Can He Do That?” podcast to a live audience at the Warner Theatre on Tuesday, Nov. 7. In this live taping, political reporters Bob Woodward, David Fahrenthold and Karen Tumulty will join host Allison Michaels to review the past year in President Trump’s White House and the biggest moments that made people wonder “Can He Do That?” Tickets can be purchased now at Live Nation. Attendees will also receive a free 30-day digital subscription to The Washington Post. 


  • The Heritage Foundation holds an event on reforming the Financial Industry Regulatory Authority.

  • The House Financial Services Subcommittee on Capital Markets, Securities and Investment holds a hearing on “Legislative Proposals to Improve Small Businesses’ and Communities’ Access to Capital.”

Coming Up

  • The Washington Examiner holds an event on the tax bill with House Speaker Paul D. Ryan (R-Wis.) on Nov. 8.

President Trump called it “shocking” that The Post's Fact Checker gave four Pinocchios to Senate Democrats’ claim the tax plan would raise taxes for most middle-income families:

President Trump says it’s “shocking” to him that The Fact Checker gave four Pinocchios to Senate Democrats’ claims about the GOP tax plan. (Video: The Washington Post)

President Trump jokes that his mother would have never thought he’d be president:

Hock E. Tan, president of tech company Broadcom, joked with President Trump at the White House on Nov. 2, 2017. (Video: The Washington Post)
Under Armour announced that sales are down for the first time since 2005:
Under Armour announced sales are down for the first time since 2005. The news sent the company’s stock value tumbling nearly 19 percent on Oct. 31. (Video: Reuters)

Paul Manafort's 'lavish lifestyle,' by the numbers:

Former Trump campaign manager Paul Manafort is on trial for tax and bank fraud. The case has exposed his lavish spending on luxury clothes. (Video: Patrick Martin, Elyse Samuels/The Washington Post)